UBS has been fined almost £30 million by the Financial Services Authority (FSA) and put under extra scrutiny by Swiss regulators over failings that allowed a rogue trader to lose £1.4 billion.
In a strongly worded statement yesterday, the City watchdog described the Swiss bank’s risk control systems as “seriously defective”.
Kweku Adoboli, a trader on UBS’s exchange traded funds desk in London, was jailed for seven years last week after admitting trading far in excess of authorised limits in the biggest fraud in UK history.
The director of enforcement at the FSA, Tracey McDermott, said : “Failures of this type in firms of the size and standing of UBS not only damage the firms concerned but also wider confidence in the integrity of the markets and financial system.”
In a separate announcement, the Swiss financial regulator, Finma, said it was examining whether UBS should increase capital to back its operational risks. A Finma spokesman declined to elaborate.
Andrew Lim, an analyst at
Espirito Santo Investment Bank, doubted whether the Swiss authority would push UBS to raise more capital because the bank was already in a strong position.
“The fine is immaterial and the steps on the capital front are also immaterial because they are so well capitalised,” Lim said.
“Finma is just doing a ‘belt and braces’ approach and showing they are at the forefront on being tough on regulation,” he added.
Since the Swiss government bailed out UBS during the 2008 financial crisis, the country has drawn up tough new capital standards for its two global banks – UBS and Credit Suisse – that go beyond the new Basel III global rules.
UBS said yesterday it had made progress over the past year “reinforcing our position as one of the most financially sound global banks”.
The Swiss regulator said it was appointing an independent investigator to see whether the action UBS is taking to put things right after last year’s scandal is proving effective.
Finma said the bank’s control functions had been based too much on trust and that it had sent misleading signals by awarding bonuses and pay rises to Adoboli, even though he had breached the rules.
UBS said it accepted the regulators’ findings and the penalties, adding it was pleased that the regulators had acknowledged the steps the bank has taken including disciplinary action against staff.
Group chief executive Sergio Ermotti, installed after Oswald Gruebel stepped down over the scandal, announced a major restructuring last month to wind down large, risky parts of its investment bank.
Those changes will help UBS cut its total capital requirements under the Basel III rules to 17.5 per cent from 19 per cent.
Adoboli, 32, admitted trading far in excess of authorised risk limits and booking fictitious trades to hide his true positions, but said everything he did was to make profits for UBS and was in line with the bank’s culture.
After being convicted he wept as his lawyer described his Ghanaian-born client as a sensitive, hard-working young man who had tried too hard to do well.